Archive for month: November, 2016

U.S. Consumers spent $7.2 Trillion dollars in 2015, up 400B (+5.9%) from 2014.  Of this huge sum 0.944%, $67.75B was spent on our companion animals. Although overall the industry had a good year, the Pet Share of Total Spending actually fell very slightly from 0.948% in 2014.

In our recent posts, we have started to look at the key demographics behind “who” is spending the money. By looking deeper, all of the industry participants can better target their products and marketing efforts to maintain and gain retail sales…to keep the industry strong and growing.

In terms of demographics, nothing has a higher profile in the media and in our minds than comparing the actions between generations. How do the Millennials compare to the Baby Boomers? What about Generation X? These are valid questions and the Generation Demographic is the one measure that defines a very specific group of individuals for a lifetime. Emigration, immigration or death can change the mix and of course, marriage and divorce will affect the # of households. However, we can still track how aging, technological changes, economic events, in fact any change in society, affects the behavior of a specific set of individuals.

In this report we will compare the Pet Spending in 2015 vs 2014 by Generation. The “numbers” come from or are calculated from data in the US BLS Consumer Expenditure Survey. The Census Bureau handles the field work, gathering info from over 50,000 interviews and diaries. The US BLS then compiles the data into the final reports.

NOTE #1: In this report we use the term Consumer Unit (CU). This is often used interchangeably with Household. They are “close” in meaning. However, a CU indicates independent decision making on living expenditures. You can have more than one CU in a household – boarders, roommates…As a result, there are a few more CUs than H/Hs.

NOTE #2: In March of 2016, Millennials surpassed Baby Boomers in the number of individuals. However, this report deals with Financially Independent Consumer Units. The Millennials still have a lot of ground to make up!

Let’s get started by defining the generations….

• Millennials: Born 1981 to 1997; In 2015, age 18 to 34
• Gen X: Born 1965 to 1980; In 2015; age 35 to 50
• Baby Boomers: Born 1946 to 1964; In 2015, age 51 to 69
• Silent Generation: Born 1929 to 1945; In 2015, age 70 to 86
• Greatest Generation: Born before 1928; In 2015, age 87+

…and then looking at their share of the Total U.S. CU’s:

• Baby Boomers are still the largest number of CU’s at 44+M and 34.4% of the total.
• 3 Oldest Generations are losing CUs primarily due to death or movement to permanent care facilities.
• Millennials and even some Gen Xers, are establishing New CU’s as they gain financial independence.
• Immigration and unfortunately, divorce are also factors in the growing number of Gen X and Millennial CU’s.

Now let’s get to know the Generations a little better by looking at some key CU Characteristics.

• CU Size – CU’s with 2+ people spend more on their pets. The Millennials are already at the national average of 2.5, driven more by their older members. CU size peaks with the 35 to 50 year old Gen Xers and starts a general decline with the Boomers – who still are at 2+ people.
• # Children under 18 – Children are the primary reason for an increased number of people in CU’s. Millennials are just getting started with a family. The presence of young children (and the associated responsibilities and expenses) peaks with the Gen Xers who average 1+ per CU. The number of children drops precipitously starting with the Boomers. However, remember Children over 18 and grandchildren can be a part of the older CU’s.
• # Earners per CU – 2 earner CU’s also generally spend more on their pets. Gen X has the highest average at 1.7 per CU. However, both Millennials and Boomers average about 1.3 per CU. Retired people have also recently been a big pet spending factor so don’t count out the Silents and the older Boomers.
• Homeownership – 80+% of Pet Spending comes from homeowners. A mortgage is also a substantial financial responsibility. Once again the Millennials are just getting started and the bulk of their homeowners are from the 25 to 34 age group. Homeownership doubles for the Gen Xers and they reach the national average. The percentage of Home Owners continues to grow with the Boomers and peaks with the Silent Generation. The oldest Americans, for convenience or necessity, make a substantial move to renting.
  • No Mortgage – A mortgage is a substantial financial responsibility over a long period. This weighs the heaviest on Gen Xers and Millennials. Boomers are the first to make a major dent in the Mortgage expense. However, the “real” reduction in this expense doesn’t occur until the 2 oldest generations.

Next we’ll compare them to the National Ave in Income, Spending, Pet Spending and Pet Share of Total $pending

CU National Averages: Income – $69,627; Total Spending – $55,978; Pet Spending – $528.17; Pet Share of Total Spending – 0.944%

• Income peaks with the Gen Xers then starts to decline, although the Boomers are still above average. The big decline starts with the Silents and continues with the Greatest. Both of these groups are 70+ and mostly retired.
• Total Spending also peaks with the Gen Xers and is 50% more than the Millennials. Boomer spending declines about 10% but is again above the average. For the oldest groups, the decline in spending is slower than the drop in income. The Millennial Spending is relatively high considering their income level.
• CU Pet Spending for the Gen Xers is 50% higher than the Millennials but this is not the peak and in fact, doesn’t quite meet the National Average (97%). The top award belongs to the Boomers, with a 43% increase over the Gen Xers and 39% above the National Average. Boomers are the only group spending more than the National average on their Pets. Once again, the spending drops off sharply with the Silents. However, they still spend 28% more than the Millennials. Pet Spending and ownership plummets with the Greatest Gen. (age 87+)
• Pet Share of Total Spending….
  • Exceeds 1% with the Silent Generation and Peaks with the Boomers at 1.23%. The income of the Silent has dropped significantly, but so have their responsibilities in terms of children and mortgages. The Boomers have a similar story but their income is still high. Both are now more focused on their Pet “children”.
  • Is lowest with the Greatest Generation. However, some have a lifetime commitment to their pet family.
  • Is under 0.8% for both Millennials and Gen Xers. The Millennials are buying houses, starting families and careers while they are waiting for their income to “catch up”. There is definite “price pressure” in their decisions. The Gen Xers make and spend the most money. They are reaching the high point in responsibilities to their family and their career. Time and convenience are big issues. Also, even though the percentage of Pet Spending to their total expenditures is only 0.76%, their average CU spending is still the second highest and essentially equal to the national average.

It’s time to look at actual Dollars Spent. We’ll review the Generational spending on Total Pet and each industry segment in terms of share of sales as well as the 2015 performance compared to 2014 starting with Total Pet…

Ave CU Total Pet Spending: $528.17

• The most significant thing regarding “share” is the Boomers’ dominance. Not only do they have the biggest piece of the Pet Industry “pie”, it is 15% larger than #2, Gen X and #3, Millennials combined.
• It is also obvious that at 0.4%, the Greatest Generation is a welcome part of the industry but no longer a factor.
• In terms of 2015 Performance, the Boomers generated 78.1% of the total $3.43B increase. However, every generation, except the Greatest showed an increase so it looks pretty “good” overall. Let’s get specific.
• Boomers – Ave CU spent $733.08 (+$76.58);
  • 2015 Pet spending = $32.15B, Up $2.68B (+9.1%)
  • 2015 started off badly – Down $0.9B in the first half.
  • Then came a huge $3.58B “comeback” in the 2^nd half.
• Gen X – Ave CU spent $512.32 (-$9.02);
  • 2015 Pet Spending = $18.26B, Up $0.5B (+2.8%)
  • The 2015 $ increase came as a result of a 4.9% increase in CU’s.
  • 1^st half Down $0.11B; 2^nd half Up $0.61B
• Silent Generation – Ave CU spent $433.60 (+$49.88);
  • 2015 Pet Spending = $7.37B, Up $0.5B (+7.3%)
  • Overcame a 9% drop in CU’s.
  • Basically, equal increases in both halves.
    • +$0.27B (1^st) and +$0.23B (2^nd)
• Millennials – Ave CU spent $337.30 (-$22.75);
  • 2015 Pet Spending = $9.73B, Up $0.04B (+0.4%)
  • Without a 7.3% increase in CU’s, spending is down!
  • Sales in 1^st half Up $0.21B; Down $0.17B in the 2^nd 
• Greatest Generation – Ave CU spent $107.04 (-$103.31);
  • 2015 Pet Spending= $0.24B, Down $0.29B (-54.3%)

The Total Spending increase came from Boomers, Gen X and the Silent Generation (ages 35 to 70) Now Pet Food..

Ave CU Pet Food Spending: $230.06

• Baby Boomers spend more on Pet Food (and treats) than all other Generations combined.
• Gen X has 24% more CU’s than the Millennials but spent twice as much on Pet Food.
• Millennials spent over $0.6B less on Food in 2015.
• Boomers – Ave CU spent $355.98 (+$139.08);
  • 2015 Food spending= $15.57B, Up $5.83B (+59.9%)
  • Decision to upgrade Food drove both the Food and Industry increases.
  • 1^st half (+$2.39B); 2^nd half (+$3.44B)
• Gen X – Ave CU spent $204.44 (-$0.44);
  • 2015 Food spending= $7.26B, Up $0.27B (+3.8%)
  • 2015 $ increase came solely from an 4.9% increase in CU’s.
  • 1^st half ( -$0.13B); 2^nd half (+0.4B)
• Silent Generation – Ave CU spent $171.57 (+$11.30);
  • 2015 Food spending $2.91B, Up $0.03B (+1.0%)
  • 7% Increase in CU spending impacted by 4.9% drop in CU’s.
  • 1^st half (+0.25B); 2^nd half (-0.22B)
• Millennials – Ave CU spent $126.57 (-$31.95);
  • 2015 Food Spending $3.64B, Down $0.64B (-15.0%)
  • Older members upgraded Food in late 2014, then pulled back in 2015.
  • 1^st half (+0.27B); 2^nd half (-$0.91B)
• Greatest Generation – Ave CU spent $54.36 (-$16.60);
  • 2015 Food spending= $0.12B, Down $0.06B (-31.8%)

2015 Increase driven by Baby Boomers with a little help from Gen X and Silents (Ages 35-70) Now on to Supplies..

Ave CU Pet Supplies Spending: $115.97

• Boomers still have the largest share but the “race” with Gen X is much closer – only a 30% lead.
• Millennials – Ave CU spent $111.19 (-$1.00);
  • 2015 Supplies spending= $3.23B, Up $0.2B (+6.3%)
  • Increase is from 7.9% more CU’s, but a rare bright spot for Supplies.
  • 1^st half (-0.18B); 2^nd half (+0.38B)
• Baby Boomers – Ave CU spent $134.56 (-$13.70);
  • 2015 Supplies spending= $5.94B, Down $0.73B (-10.9%)
• Gen X – Ave CU spent $127.47 (-$32.82);
  • 2015 Supplies spending= $4.57B, Down $0.91B (-16.6%)
• Silent Generation – Ave CU spent $62.70 (-$31.51);
  • 2015 Supplies spending= $1.07B, Down $0.63B (-36.7%)
• Greatest Generation – Ave CU spent $35.96 (-$5.68);
  • 2015 Supplies spending= $0.08B, Down $0.04B (-28.9%)

Comment: CU spending was down in every group. The only “lift” was due to more Millennial CU’s.  The trend was so pervasive that we can’t blame the increase in Food spending. We’ll see what happens in 2016. Next, Services…

Ave CU Pet Services Spending: $48.70

• Boomers have the largest share but the spending is evenly split between – age 50 and under /over 50.
• Gen X – Ave CU spent $59.23 (+$12.79);
  • 2015 Services spending= $2.12B, Up $0.53B (+33.7%)
  • The biggest $ increase of any group.
  • 1^st half ( +$0.29B); 2^nd half (+$0.24B)
• Millennials – Ave CU spent $35.02 (+$8.64);
  • 2015 Services spending $1.02B, Up $0.31B (+42.4%)
  • A 42% increase – Millennials got “on board” with Services in 2015.
  • 1^st half (+0.08B); 2^nd half (+$0.23B)
• Boomers – Ave CU spent $55.98 (-$3.49);
  • 2015 Services spending= $2.47B, Down $0.21B (-7.6%)
  • A small decrease, primarily in the first half of 2015.
  • 1^st half (-$0.17B); 2^nd half (-$0.04B)
• Silent Generation – Ave CU spent $35.93 (-$0.79);
  • 2015 Services spending $0.61B, Down $0.05B (-7.0%)
  • Most of the decrease came from 4.9% fewer CU’s.
  • 1^st half (No Change); 2^nd half (-0.05B)
• Greatest Generation – Ave CU spent $12.15 (-$0.82);
  • 2015 Services spending= $0.03B, Down $0.01B (-22.9%)

The increase was completely driven by the Gen Xers and Millennials as they opted for the convenience that Pet Services brought to their hectic lives. The Over 50 crowd was down…slightly. The final segment is Veterinary…

Ave CU Veterinary Services Spending: $133.44

• Although they lost share, Boomers are still very dominant in this industry segment
• Veterinary spending somewhat “mirrors” human medical spending. As we age, we become more conscious of the need for regular medical visits and usually require more services. We transfer this feeling to our companion animals. One result is that 64% of all Veterinary spending is done by the over 50 age group.
• Boomers – Ave CU spent $186.56 (-$45.32);
  • 2015 Veterinary spending= $8.17B, Down $2.21B (-21.3%)
  • Decision to upgrade Food undoubtedly contributed to the $3B first half drop in spending. A big comeback in the second half may indicate that many services were just delayed.
  • 1^st half (-$2.98B); 2^nd half (+$0.77B)
• Silent Generation – Ave CU spent $163.40 (+$70.88);
  • 2015 Veterinary spending $2.77B, Up $1.14B (+70.0%)
  • A $1.1B increase shows a lifetime commitment by these 70+ yr olds.
  • 1^st half (+0.38B); 2^nd half (+$0.76B)
• Gen X – Ave CU spent $121.19 (+$11.45);
  • 2015 Veterinary spending= $4.31B, Up $0.61B (+16.4%)
  • Consistent, strong increase – a good sign for Gen Xers as Pet Parents.
  • 1^st half ( +$0.19B); 2^nd half (+0.42B)
• Millennials – Ave CU spent $64.51 (+$1.55);
  • 2015 Veterinary Spending $1.85B, Up $0.18B (+11.0%)
  • An indication of a growing commitment to their Pet family.
  • 1^st half (+0.04B); 2^nd half (+$0.14B)
• Greatest Generation– Ave CU spent $4.57 (-$80.22);
  • 2015 Veterinary spending= $0.01B, Down $0.19B (-94.8%)

Gen X, Millennials and the Silents all had strong increases, but they couldn’t overcome the $2.2B drop in Boomers’ spending. It appears that the Veterinary segment paid a price for the Boomers’ decision to upgrade their Pet Food.

One last chart to compare the share of spending to the share of total CU’s. How did the generations perform?

• The Boomers “earned their space” in every Industry segment. Gen X was close in all but only made it in Supplies & Services. The Silents performed well in Vet. Millennials…close in Supplies, but are still getting “up to speed”.
• Note: The older 2 generations’ best performance was in the “need” segments – Food and Veterinary. The 2 younger groups were at their best in the more “discretionary” segments – Supplies and Services. Curious…???

Comments

The Greatest Generation – They aren’t called the “Greatest” for no reason. They literally helped change the world. However, with their youngest member now 87 years old, their time as Pet Parents is inexorably coming to an end.

The Silent Generation – At 70+ years old, their lifetime commitment to their companion animals remains strong. This is immediately apparent when one sees their $1 billion dollar increase in Veterinary spending and the fact that they spend over 1% of their total expenditures on their pets – second only to the Baby Boomers.

Baby Boomers – They have been the consumer group most responsible for the spectacular growth of the Pet Industry. They were the first “Pet Parents” and that commitment remains as strong today as it was over 30 years ago. They are the leading spenders in every segment, especially those most associated with the wellbeing of our companion animals – Food and Veterinary. Even today, they are still making the informed, expensive decisions to do what is best for their pet family. In 2015 they made the choice to “upgrade” their Pet Food. The cost…over $5B. Admittedly, their spending in other segments suffered somewhat, but may already be bouncing back. Amazing!

Gen X – They currently make and spend the most money overall and their Pet Spending per CU is close to or above the national average in all segments. The next five years will be critical. Their children will begin to “leave the nest”, which usually results in additional focus and spending on their pet family, which is still at home. We’ll see.

Millennials – Their every move is subject to speculation. Everyone is concerned about the future and there is no doubt that they are the future. We tend to lump all Millennials together. However, life, including spending behavior, progresses in stages. A large percentage of this group is still in the earliest stages of “building” their lives. We need to provide them with the information, support and products to fulfill their wants and needs. Then…be patient. Count on the extraordinary appeal and allure of companion animals. In a phrase, “Bet on Pets!”

I welcome your questions and comments!

Earlier this year we updated our ongoing study of the consumer “migration” between retail channels. When we eliminate Restaurants, Auto and Gas Stations, 3 “relevant” channels stood above the “pack”. In homage to the Olympics, for their 2015 performance we “awarded” the following medals:

• Gold: Supermarkets – $588B
• Silver: SuperCenters/Clubs – $440B
• Bronze: Internet/Mailorder – $433B

Unlike the Olympics, this race is run every day and effectively has no finish line. In this report we will update the standings since the end of 2015. But first, we will put these “key” channels into perspective in terms of their historical sales growth and key waypoints. As we have said on numerous occasions, the retail marketplace is constantly evolving to better fulfill the wants and needs of the consumer. These three retail channels are currently at the top but it hasn’t always been that way. Plus, who knows what changes the future will bring?

The following chart tracks $ales for these channels from 1992 to 2015. The Data in this report comes from the U.S. Census Bureau – Specifically: Their Retail Trade Reports and The Economic Census.

Observations

The 90’s – The foundation is laid for retail change.

• Supermarkets show steady, if unspectacular growth over the period. This has been the general “rule” for this channel. The biggest share of their revenue comes from food, which is “need” driven.
• SuperCtrs/Clubs – The major Club store chains – Costco, Sam’s & BJ’s were established in 1983-84. By 1994, the big three discount chains – Walmart, Target and Kmart – were fully committed to the SuperCenter format. By the last years of the century, 97-99, the consumer had begun to “buy into” both of these concepts and there were enough outlets to make a difference.
• Internet/Mailorder – Remember that this group also includes sales through TV – from individual commercials to dedicated “sales only” channels. In the beginning there was no internet. However, by 1995, secure encryption had been developed for online transactions and Amazon was founded. The stage was being set but growth would require increased consumer technological coverage.

2000-2004 – An economic “slow down”

• Spending slowed during this period. It began when the dotcom bubble burst in 2000 along with a slowed GDP in the second half of the year. While Consumer Spending didn’t decline, the increases were significantly smaller in 2001 and 2002. The recovery was then spread over 2003-2004.
• Internet/Mailorder – The dotcom bust had an immediate impact in 2001 with flat sales. Full recovery happened in 2003, which incidentally is the first year that Amazon posted a profit.
• Supermarkets – With “need” driven spending, consumers in this channel are both slower to react to a downturn and to recover. They had flat sales in 2002 and didn’t recover their momentum until 2004.
• SuperCenters/Clubs – They didn’t miss a beat. With a growing store count, consumers turned their attention and their $pending to these “value” store formats.

2004 – 2008 – Good times until….

• A period of strong growth until “the fall” in late 2008.
• Supermarkets, SuperCenters and Clubs all registered strong growth through 2008.
• Internet/Mailorder – From 2004 to 2007, the growth of the internet makes a major impact on this segment. Sales slowed markedly in 2008, a year earlier than other channels. With a high percentage of discretionary purchases, it appears that a slowdown in this channel may possibly provide “early warning” of impending drops in overall retail spending.

2009 – 2010...the recession and rebound.

• U.S. Retail Spending fell 8.2% from 2008 to 2009, affecting most channels.
• Supermarket Sales were flat in 2009 but SuperCenters/Clubs and Internet/Mailorder still posted small increases.
• Once again, it took the Supermarkets an extra year to fully recover (2011). However, the recession firmly established “price” as the primary factor in buying decisions. As a result the sales in SuperCenters/Clubs and Internet/Mailorder responded immediately and strongly.

2011 – 2015 – the Recovery and aftermath.

• Since 2010 Supermarkets have reverted to their previous pattern of slow growth – 3.3% per year. However, they are losing market share as this rate is lower than the growth rate of the overall market.
• SuperCenters/Clubs rate of growth since 2009 is 3.6% which is lower than their pre-recession rate and they too have begun to lose overall market share.
• Internet/Mailorder Sales have literally taken off since the recession – a 10.6% average annual growth.

Here’s what has happened since the end of 2015!

• The Internet/Mailorder Channel passed the SuperCenters/Clubs in sales in March of 2016 (about the time of the GPE) and has continued to widen their lead. With the current Holiday forecast, expect the gap to grow even larger.

Supermarkets, Internet/Mailorder and SuperCenter/Clubs are the 3 largest “Pet relevant” channels in the U.S. Retail Marketplace. Just how important are they to the Pet Industry? The following chart shows their share of total retail Pet Products (Food & Supplies) sales from the last 5 Economic Census Reports. I took the liberty of including Pet Stores in this elite Pet Products Sales group.

Observations

• In 1992 Supermarkets sold the most pet products. Consumers bought Pet where they did their grocery shopping. After falling precipitously for 15 years, Supermarkets rebounded after the recession. However, in 2012 they have basically 1/3 of the Pet Products market share that they enjoyed in 1992.
• The rapid growth of Pet Chains in the early 90’s helped push Pet Stores to a peak 40% market share in 1997. They maintained this level until the Recession, when consumers started shopping for lower prices.
• The SuperCenters & Clubs share of Pet Products went up sharply as these outlets grew both in number and popularity. Although their Pet Product growth has slowed somewhat in recent years, they are still a strong number 2 behind Pet Stores.
• The first measurable Internet Pet Products sales showed up in 2002 – $70M. By 2012 that had grown to over $1B and the combined Internet/Mailorder channel accounted for 8.5% of all Pet Products sales.
• These 4 Channels account for 80.9% of all Pet Products sales. 66.5% of all Pet Products sales come from outside the Pet Store Channel. These 3 Mass Market channels account for 47.4% of all Pet Products $.
• In 2012 Supermarkets and SuperCenters/Clubs accounted for 38.9% of all Pet Products Sales. In 20 years the market has come “full circle”. In 2012, just like in 1992, Consumers bought the most pet products where they did their regular grocery shopping.

So these Retail Channels are obviously very important to the Pet Industry. What about the reverse? How important are Pet Products Sales to Supermarkets, SuperCenters/Clubs and Internet/Mailorder Retailers? In the next chart, we’ll look at the share of Pet Products Sales of the Total Revenue for each channel.

The percentages may seem low, but they represent Billions of dollars. Let’s put them into perspective. In 2015 Consumer spending on all four Pet Industry segments was about 0.94% of an average household’s total expenditures. Pet Products (Food & Supplies) spending accounted for 0.62%. In 2012 (the latest year on the chart) the numbers were 1.01% for Total Pet spending and 0.64% for Pet Products.

With these lower percentages in mind, now take a look!

Observations

• Supermarkets – From 1992 to 2002 Pet products held at about 1% of total revenue, but their market share of Pet was radically falling as Pet Products’ distribution exploded across retail. They reached a low point in 2007 but have engineered a strong comeback through the recession and recovery.
• Internet/Mailorder – Pet Products were relatively insignificant through 2002. Then the Internet started to take off in 2003 and the importance of Pet Products to the channel began to grow. It’s also important to note that unlike the other 2 channels, the bulk of the purchases were coming from the Supplies Segment, not food. When they turn their efforts to food…
• SuperCenters/Clubs – When this Channel began to grow in the 90’s, Pet Products were an integral part of their plan and grew as their revenue increased. Since the recession, Pet Products have reached an incredible 2.4% of this huge channel’s total revenue. If overall sales flatten out in these stores, it could affect the overall revenue of the Pet Industry…unless the Internet picks up the slack.

We have reviewed the history and growth of the 3 largest Relevant Retail Channels, including a month by month look at 2016 YTD. We documented Internet/Mailorder passing the SuperCenters/Clubs to firmly take over the “silver” spot in the retail marathon. We validated the importance of these channels and Supermarkets to the Pet Industry. We have also confirmed that Pet Products are important in these retailers’ current and future Plans.

What’s next?

Let’s take a stab at predicting the future. In a final chart, we apply the annual growth rate of Supermarkets and Internet/Mailorder since the recession to project the outcome of the race for the “Gold” that has developed.

Too conservative? Mid 2020 for Internet/Mailorder to “grab the Gold” doesn’t take into consideration that for the first time, the Internet is specifically targeting Grocery products’ revenue.

Too optimistic?  Possible restrictive changes in trade agreements could drive up prices and reduce spending on many GM products (like Pet Supplies). This would slow sales in many retail channels, even the internet.

We’ll have to wait and see…